Shares recover as Trump tariff plan faces resistance

Global Stock Markets

Share markets in Asia and Europe regained ground on Tuesday after U.S. President Donald Trump faced growing pressure from political allies to pull back from proposed steel and aluminum tariffs and a potential global trade war. 

European sentiment was also supported after Germany reformed its coalition government to end more than five months in political limbo and as initial unease caused by a hefty election vote for anti-establishment parties in Italy began to ebb. 

Italian bonds gained and shares bounced almost 1 percent having slipped to a six-month low after the weekend vote. 

Europe’s big three - Britain’s FTSE, Germany’s Dax and France’s Cac - were up 0.5-1 percent too, with euro a fraction higher and the pound a touch weaker as the dollar steadied. [/FRX] 

Top U.S. Republican politicians, including House speaker Paul Ryan, urged Trump on Monday not to go ahead with tariffs on foreign imports of steel and aluminum. 

Even though the president said he would not back down, he suggested Canada and Mexico could be exempted if a new NAFTA trade deal was agreed. There was speculation that this had been the main motivation behind the plan

After Wall Street’s S&P 500 had put on more than 1 percent, Asia’s bourses rallied in concert overnight. 

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.5 percent, snapping five straight days of losses. Japan’s Nikkei jumped 1.8 percent from a five-month low, helped too by reassurances from the head of the Bank of Japan that it would not suddenly end stimulus. 

Korean shares also erased the remainder of the hit they took after Trump’s tariff warnings last week. The country is seen as being among the most exposed in Asia due to the large amount of steel it exports to the United States. 

The threat of a trade war is not the only source of tension for the world’s financial markets. 

As the global economy steams ahead, investors have become increasingly concerned that U.S. inflation, which has been subdued since the 2008 financial crisis, could finally pick up and lead to fast interest rate hikes. 

The European Central Bank meets this week and looks almost certain later this year to end its three-year-old, 2.5 trillion euro ($3.08 trillion) stimulus program. 

U.S. 10-year bond yields had reared back up to 2.8888 percent on Monday and most euro zone yields - with the exception of those in Italy - were following suit with German Bunds off a five-week low at 0.65 percent. 

The euro traded at $1.2340, having extend its recovery from a seven-week low of $1.2154. 

In Italy, where currency traders are keeping an eye on post-election developments as none of the three main factions has emerged with enough seats to govern alone, the country’s President, Sergio Mattarella, is expected to open formal coalition talks in April. 

Early elections are possible if no coalition accord is found. 

The Canadian dollar was stuck near an eight month low at C$1.2995. 

In commodities, crude prices held firm, underpinned by robust demand forecasts and prospects for informal contacts sought by OPEC with U.S. shale oil producers at an industry meeting in Houston this week. 

U.S. West Texas Intermediate crude futures traded at $62.69 per barrel, up 0.2 percent following a 2.2 percent gain on Monday. Bellwether industrial metal copper gained 1 percent in its biggest jump in almost a month. 

China’s government said on Monday it was confident about keeping its growth rate at around 6.5 percent this year and on Tuesday defended a move to hike military spending by the biggest amount in three years.